WASHINGTON — Most drycleaning companies are too small to have dedicated human resources departments, but that doesn’t mean that HR responsibilities can be ignored. Just the opposite — it’s critical that owners make sure their HR obligations are continuously met to avoid problems down the road. 

During a recent National Federation of Independent Business webinar, Beth Milito, vice president of the NFIB’s Small Business Legal Center, outlined the five most frequent HR mistakes business owners make. 

In Part 1 of this series, we examined the high cost of getting these matters wrong, as well as the importance of being fair and consistent. In Part 2, we looked at the importance of being aware of what’s really going on in a workplace, as well as giving necessary feedback for employee success.

Today, we’ll conclude by looking at two elements that can be tricky, but are critical: employee classification and I-9 compliance.

“This is a big area for litigation,” Milito says, “and it’s really costly, too, because unlike discrimination employment claims, there is no intent required for wage and hour claims.”

Wage and hour violations operate under strict rules. If a business has paid an employee incorrectly — whether due to misclassification, unpaid overtime or off-the-clock work — the employer is liable regardless of intent or good faith efforts, Milito says. The Department of Labor estimates that 70% of employers are out of compliance with wage and hour laws, she says, “and I suspect it may even be higher than that.”

The complexity stems from navigating federal, state, and sometimes local wage and hour laws simultaneously: “It’s really hard, depending on the number of employees you have, to be 100% in compliance all the time with wage and hour laws, because the laws are tricky and they’re not intuitive.”

The most frequent wage and hour errors involve misclassification in two areas, Milito says: exempt versus non-exempt employees, and employees versus independent contractors.

For exempt classifications, employees must meet three specific requirements: They must be paid on a salary basis, receive at least $35,568 per year ($684 per week), and perform executive, administrative or professional duties as defined by the Department of Labor.

“You can’t just call somebody an administrative assistant and pay them the salary and assume that they are exempt,” Milito says. “It’s not based on the job title. It’s based on the actual duties — the performance in the job.”

Independent contractor misclassification creates even greater exposure. When workers are improperly classified as 1099 contractors instead of employees, businesses often lack proper payroll records. If these workers later claim employee status and overtime eligibility, Milito says, the absence of documentation typically favors the workers’ claims.

Proper overtime calculation involves four steps: determining the workweek (overtime is calculated on a seven-day workweek, not biweekly periods), determining hours worked, establishing the regular rate of pay, and calculating overtime at 1.5 times the hourly rate.

The key, Milito says, is accurately capturing all time worked, including those off-the-clock activities that employees might not report but that still constitute compensable work time.

“You might have a situation where you have an hourly employee who is having to log on at home at night to send reports or emails,” she says. “That would be time worked and should be included in any overtime calculations. And often, these sorts of activities are not included in time worked, and they can lead to overtime claims, so be aware of that.”

Milito recommends conducting regular wage and hour audits, particularly for businesses with multiple job classifications.

“If you have a lot of different job classifications, particularly white-collar jobs — the administrative and executive employees classified as two categories, for instance — take a look at the duties for those two jobs.”

The fifth critical HR mistake involves failing to maintain proper Form I-9 documentation.

“Immigration issues are such a hot topic right now,” Milito says, noting increased focus from the Department of Homeland Security (DHS) on employer compliance with federal immigration laws.

Every employee — including family members who receive W-2s — must have a completed Form I-9 on file, she says. This requirement applies regardless of the employee’s relationship to the business owner.

“Even if it is your son, daughter or your mother, if they get a W-2, then you need to fill out a Form I-9 just in case.” 

For businesses that haven’t maintained consistent I-9 practices, Milito recommends conducting an internal audit.

“If you find incorrect information, have the employee fill out a new form,” she says, “or if you determine that you don’t have a Form I-9 for an employee, have the employee fill one out and date it.”

These corrected forms should be dated when completed, not backdated to the employee’s start date. This honest approach demonstrates good-faith compliance efforts.

Both wage and hour records and I-9 forms can be maintained digitally, provided they’re properly secured and accessible when needed, Milito says, adding that this approach can actually improve organization and compliance monitoring.

The complexity of employment law continues to increase, but Milito believes that businesses that focus on preventing fundamental mistakes — consistency, awareness, feedback, wage compliance, and documentation — can significantly reduce their legal exposure while building stronger, more engaged workforces.

“The goal is to not have a lawsuit,” she says. “To not have a claim brought against you. Because the bottom line is that the benefit of the doubt is going to go to the employee. You want to make sure that you’re treating similarly situated individuals the same. Doing that will reduce your legal risks.”

For Part 1 of this series, click HERE. For Part 2, click HERE.